The Real Business Cycle Theory Asserts That Output Can Vary

question 27

Multiple Choice

The real business cycle theory asserts that output can vary significantly over a business cycle even if real wage rate changes are relatively small because

• A)labor supply is very responsive to permanent wage rate changes
• B)people are willing to substitute leisure intertemporarily
• C)firms will adjust their output immediately by laying people off
• D)even small changes add up after a while
• E)workers spend their wage increases right away

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Definitions:

Predictivity

The ability of a model or test to accurately forecast outcomes or behaviors.

Reliability

The consistency and stability of a measurement over time, indicating the degree to which an instrument or procedure repeatedly produces the same result under the same conditions.

Reactivity

The phenomenon where subjects alter their behavior due to the awareness of being observed.

Variability

The amount of dispersion of scores about some central value.